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Tuesday, May 3, 2016

GDB Creditors Agree To 53% 'Haircut'

GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO
ANNOUNCES FRAMEWORK OF INDICATIVE TERMS FOR
RESTRUCTURING
WITH GDB AD HOC GROUP OF CREDI-
TORS

Creditors Agree on 53% Haircut for Global Restructuring and Forbea-rance From
Exercising Remedies Announcement Follows Declaration of Moratorium by Governor on Obligations of GDB GDB Will Pay Interest on May 1

San Juan, P.R. – The Government Development Bank for Puerto Rico (“GDB”)
announced today that it has
negotiated a framework of indicative terms for a
restructuring of GDB bonds with a group of bondholders
(known as the “Ad
Hoc Group”) holding approximately $900 million of GDB’s outstanding notes
(the “Old
Notes”). The framework includes an understanding with the Ad Hoc
Group regarding key terms for a
restructuring of a portion of GDB’s Old Notes
held by the group and a path forward to a broader
restructuring of all of GDB’s
Old Notes. The agreement on key terms will provide a framework for GDB
and
the Ad Hoc Group to continue negotiations over the coming weeks with a view
to enter into an
agreement in principle that would memorialize in full the terms
and conditions of the proposed
restructuring. As part of the understanding rea-
ched today, the Ad Hoc Group and GDB intend to negotiate
related terms over
the next 30 days and forbear from pursuing legal action related to the May 1st
debt
service payment during such negotiations.

The agreed key terms contemplate a two-step restructuring of GDB’s obliga-
tions, in which all holders of
the Old Notes (including the Ad Hoc Group) wo-
uld first exchange (an “Interim Exchange”) their current
holdings for new notes
at GDB (the “Interim Notes”), to be followed by an exchange of such Interim
Notes
as part of a future global restructuring of the Island’s debt that includes
GDB’s debt (the “Global
Restructuring”). As part of the agreed key economic
terms, creditors would agree to haircut of 43.75% of
the face amount of their
Old Notes in the first-step exchange. In addition, as part of the transaction,
bondholders would agree to the proposed treatment for their notes, in a sec-
ond step exchange as part of a
Global Restructuring, that would result in an
agreed haircut of 53% of the face amount of their Old Notes.
The agreed fra-
mework of key economic and structural terms for the Interim Exchange and
treatment in
the Global Restructuring is set forth more fully in Annex A here-
to. As noted in Annex A, many important
terms of the transaction remain sub-
ject to further negotiation between the parties. In addition, the
transaction wo-
uld be subject to several conditions, which would need to be met over the co-
ming months
before the deal could proceed.

Importantly, the proposed terms of the Interim Exchange require 100% partici-
pation by all bondholders,
including, in addition to the Ad Hoc Group, the state-
chartered credit unions in Puerto Rico (or
“cooperativas”) and other large insti-
tutional groups on island. As a result, the proposed transaction is
being designed
to take into account the varied interests of all its creditors, and GDB and the
Co-
mmonwealth plan on continuing discussions with such groups over the coming
weeks to ensure that
any agreement in principle reflects their concerns in a debt
restructuring. Similarly, as a comprehensive
deal for all GDB stakeholders, the
transaction contemplates providing a path forward to depositors,
including by
providing collateral for their deposits, as GDB works through its challenges.

Without federal restructuring legislation, including the tools to bind non-con-
senting creditors, the
transaction would be highly unlikely to reach the requi-
red participation levels. In the absence of federal
legislation, the GDB would
not be able to complete the deal as proposed, and the Commonwealth as a
wh-
ole would not be able to move towards a comprehensive restructuring of the
island’s debt.

The announcement of this framework of indicative terms with the Ad Hoc Gro-
up follows the declaration
of the Governor of the Commonwealth of Puerto Ri-
co of a moratorium on debt service obligations of GDB.
Consistent with the te-
rms of the Governor’s executive order, GDB intends to pay interest on its bonds
due May 1.

“The agreement on key terms with the GDB Ad Hoc Group is the result of ma-
ny weeks of negotiations and
discussions between us and the Ad Hoc Group. We
appreciate the good faith and patience they have
shown throughout this process
the work both they and Commonwealth officials have put into
ensuring that the
interests of all Commonwealth stakeholders are respected going forward. While
we
have many steps to go before we reach a full agreement on a deal and that
deal can be consummated, this
agreement represents a vital first step in the Co-
mmonwealth’s path to economic recovery,” said GDB
President Melba Acosta
Febo.

“To be very clear, this is but one piece in a complicated process that will require
every Commonwealth
creditor to participate. The time necessary to reach even an
agreement on key terms with 1/4 of a single
issuer’s bondholders demonstrates
that, in the absence of federal legislation that gives Puerto Rico the
tools it needs,
the island will be condemned to a quagmire of economic stagnation with no relief,
for
which both 3.5 million American citizens and our creditors will bear the con-
sequences.”